Canaan exec says opportunity outweighs crisis as Bitcoin miners struggle with shrinking profits

2022 was a very difficult year for crypto markets. The last few months of Bitcoin’s (BTC), price action may be a sign that bears don’t seem to be ready to give up. A falling crypto price means a decrease in profits for Bitcoin miners. This week’s US lawmakers’ regulatory action requesting data on energy consumption from four of the largest BTC mining companies will add to an already fragile situation.

Cointelegraph spoke to many Bitcoin miners who are optimistic about Bitcoin’s long-term and short-term price prospects despite the bearish environment.

Canaan’s senior vice president Edward Lu shared similar sentiments with Ray Salmond, Cointelegraph head for markets. They discussed how the industrial Bitcoin miners have grown and the new synergies that they have created with the US and Middle East oil and gas sectors.

Ray Salmond: Edward, What’s the current state of the mining industry from your perspective?

Edward Lu: Wow. This is a big question. This industry is experiencing a lot, especially in the last months. It looks like Bitcoin is moving in a shorter cycle than we expected. The price of Bitcoin will rise a little by the end, I believe. There are many activities taking place in the mining industry.

I recall that China and the U.S. were the major markets for mining before last year. Then, the mining’s hash rate rates increased and the Chinese miners fled the country to Kazakhstan during the first phase. We see a lot more activity happening in Texas, starting at the beginning of the year.

There is a greater availability of electricity that is cheaper, relative to other countries, as well as friendly policies and engineers. These industries have decently-trained engineers. There are many things happening in the mining industry.

RS:Electricity costs are rising in the United States and Europe, while Bitcoin trades near its 2018 high. ASIC prices have dropped by 70% and it seems that profitability is not as important to some miners. In this current environment, what are the capital expenditures and operational expenses (OPEX), that industrial miners must consider?

EL: Well, yes. However, the mining industry is a profitable and healthy business if you consider the long-term. These days are not perfect. There is always a slight drop in value. Both the Bitcoin price and energy price are rising. However, you can’t ignore OPEX, CAPEX and the profitability of the mining sector.

Number one is your machine costs. Your energy cost is number 2. Your infrastructure cost is number three. Your OPEX for daily maintenance is number four. To my knowledge, however, the OPEX for daily maintenance is the fourth. If you look at the current machine efficiency and market prices, the average price per unit of energy, and your OPEX price, then the Bitcoin price must not fall below $15,000 in order to allow miners to make a profit.

RS: In 590 days, the next Bitcoin halving will take place. How does this affect the efficiency of ASICs between 110 TH/s and 140 TH/s. Could you talk about mining’s reward becoming lower, but the amount of energy needed to produce 1 BTC increasing? This dynamic could change with rising production costs.

EL: Machines will continue to improve. As technology improves, we’ll become more efficient. Bitcoin is designed so that the reward is halved every four years. This doesn’t mean your profit will decrease. The history shows that each halving occurred every four years and the business continues to grow. The mining industries continue to grow. As I mentioned earlier, profit depends on many things. Your machine costs, infrastructure costs, OPEX, CAPEX, and energy costs are all important. The Bitcoin price is, however, the most important thing. There are many factors that go together. This trend is not going to slow down. This industry will continue to grow as it has in the past. This is a profitable and healthy business for the mining industry.

RS: Would it be wrong to assume that ASICs will become more powerful with each new having?

EL: No. To be truthful, it’s not true. It is not right to look at technology and machines, even if they have 100 TH/s 120 TH/s and 140 TH/s respectively. The consumption power versus terahash, which is what we refer to as efficiency per joule per T/s is decreasing.

The efficiency of the previous machines is more than 60 to 65 joules. Today, it’s lower. The market average efficiency is around 30 joules. We can see that by the end this year, all three major players will have machines, or have already gone to market, with 25 joules, and possibly even less. The machines are more efficient and consume less power than TH/s.

RS: There’s growing synergy between traditional big energy and Bitcoin mining, such as capturing flared gas to power generators, solar mining and even hydroelectric-powered mining. Is industrial Bitcoin mining the key to mass adoption and bringing Bitcoin into everyday life?

EL: This industry was started a few years ago by a lot Chinese entrepreneurs who were mining. All of them were passionate entrepreneurs who believed in the industry. It was a passion-driven entrepreneur or individual who started it in China. They were looking for short-term investment. They were looking for short-term cash — just like the typical Chinese entrepreneur.

Slowly, however, I have noticed that my Canaan partners and my Canaan partners have been evolving or changing over the past three years. From the individual Chinese entrepreneur to now, more and more, I see that our long-term partners of Canaan and Avalon are traditional energy companies, institutional investors, financial-institutional clients and traditional financial investors. This type of evolution or change really changed the landscape of the mining sector and its nature.

These energy companies are able to convert surplus and wasted energy into storable value. This allows them to convert these wasted energies into a storable asset. Bitcoin is something you can store. You can’t store those energies if you’re wasting them.

This is the view of an energy company. This kind of evolution, increased involvement and the change in the players in the mining industries, I believe, has effected the entire industry.

It is industrially scaled and becomes more professional in the mining industry. This will also improve the business’ long-term outlook. People want to work long-term and are increasingly drawn to traditional, institutional and energy businesses. This changes my perception of the situation. This allows us to be more professional, transparent and has long-term goals for the mining industry.

Related: Will Bitcoin mining industry crash? Analysts explain why crisis can be a great opportunity

RS: Personally, I believe that Bitcoin is a legitimate investment. There are many reasons why someone should have access to Bitcoin. Bitcoin is no longer a hobby or community-led venture for short-term gains. It has become an industrialized part of the energy sector. Is this what you believe will result in Bitcoin being a mass asset?

EL: We believe in Bitcoin. Canaan, one of the first companies to enter this market, is something we’ve done for a while. Our CEO is actually the inventor of ASIC mining machines. We are firm believers. You believe it is an asset, just as you have said. It is an asset to me. If you look at my words, the profile and motivations of the mining industry is changing. If you look at Bitcoin, however — Bitcoin was almost entirely in the hands and control of the entrepreneurs when we first started the industry. As I said, this industry has seen the rise of traditional financial institutions and companies over the past three years. This really changes Bitcoin’s ownership and profile.

This is why Bitcoin has become more closely linked to traditional financial market fluctuations in recent years. Bitcoin’s volatility is much more consistent with the current market than the past. This is a positive change in my opinion, as Bitcoin is one the most traditional financial assets. It is an asset, and it is becoming more traditional now — that is what I mean.

RS: Long-term investors, retail investors, and small miners who once mined at home for a hobby or profit are concerned that the industrialization and Wall Street’s entry into cryptocurrency will damage Bitcoin and weaken the movement. Are you convinced that the Bitcoin revolution has been co-opted by Wall Street?

EL: Yes, well, you’re right. First of all, Bitcoin is what we believe in. We also believe in decentralization. We have not discussed the technology in detail, so I only mentioned the Canaan Avalon. When we make our machines, our normal air cooling system uses less than 3,500 watts.

We are different from other companies that make containers to order. Machines that consume more than 6,500 watts are made by the big companies. These machines are not suitable for retail miners. We will not abandon the core of our culture. Decentralization is the heart of it. When we look at our machines, it is important to focus on the individual machines. Every machine must use less than 3500 watts. This means that everyone at home can mine from their garage, house or kitchen. One or 10 machines can be purchased. It all depends on the cost of electricity. However, the machine can be bought one or ten. It doesn’t have to be a mining operation with large companies.

RS: Do you have anything to share with the world? Are there any personal thoughts that you would like to share with the world?

EL: Anyone in the industry will know that Bitcoin has a cycle. The cycle can last for up to three years. Sometimes it can last three to six months. Other times, it can last as long as two to three decades. It will likely be shorter this time. Although it is impossible to predict the future, I am more confident that the price of Bitcoin will continue rising slowly by the end. In the long-term, Bitcoin is expected to experience a much greater price growth.

One thing I want to say is this: Let’s be sure in this industry. This industry has evolved in terms mining machine technologies, infrastructure build-ups by using green energies and in terms a good mix of institutional and individual players. As I said, Bitcoin is a type of financial asset.

Everything is improving or moving towards long-term positive things for me. I have great confidence and want to share this with people and readers of Cointelegraph.

Chinese is my mother tongue, and the Chinese character for crisis, in Chinese, is two characters that are combined in one word, “crisis.” However, it’s possible to separate the characters. One is crisis and the other is chance. Wei Ji is pronounced weiji in Chinese. This is Wei Ji (weiji) at this moment. The first character (Wei) is used to denote danger or crisis. The second character (Ji) refers to opportunity. Chinese see crisis as two parts. The first is a crisis and you need to be aware. You must be serious. This crisis can be avoided by being prepared. We believe that there are more opportunities in times of crisis. There are many opportunities. The Chinese term “Wei Ji” means “Crisis and Opportunity”.

This moment offers more opportunity than crisis, I believe. There are more opportunities for miners and miner manufacturers, infrastructure builders as well as energy builders, traditional financial investors, and traditional financial investors. This time is a time of more opportunities for me.

This interview has been edited and condensed for clarity.

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Eileen Wilson

Eileen Wilson –Technology and Energy My Name is Eileen Wilson with more than 5 years of experience in the Stock market industry, I am energetic about Technology news, started my career as an author then, later climbing my way up towards success into senior positions. I can consider myself as the backbone behind the success and growth of topmagazinewire.com with a dream to expand the reach out of the industry on a global scale. I am also a contributor and an editor of the Technology and Energy category. I experienced a critical analysis of companies and extracted the most noteworthy information for our vibrant investor network.

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